October 12, 2014

Trade Recap - APT

Here was the daily chart for APT on Oct. 9th:


In the last two months alone, APT had gone from about $2 to $5! Very impressive price appreciation there. So this popped up on my FinViz scan and compelled me to pull up the intraday chart. I was short biased because the stock had been on a tear and the odds were in favor of at least a short-term pullback. I drew trendlines and decided to wait for the stock to tell me to short--i.e., break an up-trendline and subsequent lower highs or a double top.


I got my chance fairly quickly at ~$4.60, but I hesitated. Instead, I shorted after the major up-trendline failed and began acting as a top at ~$4.45. I set my stop at previous resistance and set two price targets (one short term and one long term).


In the meantime, I wanted to keep my mind off every tick and busy with something else in order to avoid over-thinking the trade. I pulled up the Yahoo Finance page for APT and started reading about the company. Then I uncovered landmine--this was an Ebola stock, and those stocks are on complete fire right now! Furthermore, TheStreet.com had an article out with a buy rating on APT because the company had stellar year-over-year revenue AND earnings growth. I thought it couldn't get worse but then I saw that APT had essentially no debt!

Ladies and gentlemen, this was a nightmare scenario for a short seller and a best case scenario for a momentum trader.

As a result, I quickly adjusted my stop closer to my entry--$4.54. I figured if this stock retested and broke above this resistance level, it would surely pop into the close, squeezing shorts and bringing in far more momentum traders--especially traders jumping on the latest/hottest stock trends: Ebola stocks.

Guess what happened? Exactly what I feared, but thankfully I covered smartly at $4.54 and avoided getting my face ripped off due to the massive spike into the close:


The second I covered, APT ripped hard through the $5 magnet.


Then volume started coming in hard and APT couldn't push any further because of massive profit taking and short selling. I recognized a good opportunity for a quick scalp--nothing to marry--but to take advantage of chasers, profit takers, and short sellers all converging. I shorted small at $5.04 and watched APT drop almost immediately after my short. I put in my order to cover at $4.92, not too greedy because I thought momentum traders might buy the dip for a gap play and eventually overcome the sellers. However, APT did flush all the way down to about $4.75 and held that into the close; so my original thesis was spot on:


Let's recap:
Strengths:

  1. Overextended daily chart
  2. SPY down big
  3. Broke up-trendline, support, and started topping before shorting
  4. Identified two PTs and a STP with a good R:R
  5. Searched Yahoo Finance, discovered information that affected my thesis on the trade
  6. Cut losses fast!
  7. Shorted the stall at $5 magnet with a big volume spike
  8. Quick cover for scalp, didn’t marry
Weaknesses:

  1. Woops, I shorted an Ebola stock and they’re hot, makes protective face masks and eye shields
  2. YOY revenue and earnings growth with no debt!
  3. Hesitated with initial entry

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